What Is GAP Insurance?
GAP Insurance can protect against a potential financial shortfall when funding a vehicle via a Business Contract Hire, PCP, Lease Purchase but what is it?
What Is GAP InsuranceTypically, motor insurers will provide "New For Old" cover for new vehicles during the first 12 months of ownership. This simply means if your vehicle is declared an insurance write off during the first 12 months, your insurance company will provide a like-for-like replacement vehicle. If an insurance write off occurs after the first 12 months, things are more than likely going to get expensive. Insurance companies will only payout market value, which is normally around the trade price. Don't forget, as soon as you drive a new car off the forecourt it starts to depreciate in value - especially in the first few years. However, during the early stages of any finance agreement you are paying off mainly interest - much like how a mortgage works. So you could find yourself owing more to settle the finance than the car is worth.
How Gap insurance worksLet's give a quick example: "Steve is involved in a crash (don't worry, Steve's fine) and his insurance company have declared his beloved Audi A4 a total write off!!! Bad times. Steve's insurance company have decided market value is currently £15,000, but to settle his finance agreement including any early termination fee's Steve needs £20,000. Very bad times!! So Steve has a shortfall (or GAP) of £5,000 from what his insurance company are prepared to payout and what he needs to settle the finance agreement. Normally Steve would need to make up this shortfall himself....but Steve took out GAP Insurance. [caption id="attachment_163" align="alignright" width="334"] GAP Insurance covers the shortfall between an insurance payout & any outstanding finance.[/caption] Steve's GAP Insurance (Guaranteed Asset Protection) company will meet any shortfall between what the motor insurance company payout and what is required to settle any outstanding finance agreement. This meant Steve wasn't out of pocket and allowed him to lease another new car. Good times!!"
Why Would You Need GAP InsuranceHere's a few reasons you should consider GAP Insurance:
- Over 500,000 vehicles become a total loss each year
- UK Car Crime is a third of all crime.
- A vehicle is stolen every minute 33% of these are never recovered.
- Cars seem to be depreciating at a far greater rate than ever before.
- Motor Insurance settlements are always less than the price you pay for your car.
- When write off's occur you lose out and have to raise the funds for any shortfall and the deposit on a new vehicle.
- Write off's occur all too often, protect yourself.